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Vertices | Tax & Accounting

Essential Bookkeeping Tips for Year-End Success

Table of Contents

Introduction

As the year comes to a close, it’s time to review and tidy up your business’s finances. Year-end bookkeeping can be a daunting task, but with the right approach, it ensures that your financial records are in top shape for tax filing, strategic planning, and assessing your company’s financial health. Whether you run a small business or oversee a larger operation, these practical year-end bookkeeping tips will help you close out the year smoothly and set the stage for success in the upcoming year.

Frequently Asked Questions

What is the difference between a tax credit and a tax deduction?

A tax credit directly reduces the amount of taxes you owe, while a tax deduction reduces your taxable income. Tax credits are generally more beneficial because they provide a dollar-for-dollar reduction in your tax liability.

 

 

Your business may qualify for the R&D tax credit if it is involved in activities that seek to develop or improve products, processes, or software. Qualifying expenses include wages, materials, and contractor costs related to these activities.

 

Yes, small businesses that make energy-efficient upgrades to their buildings or invest in renewable energy systems can claim energy efficiency tax credits. This includes investments in solar energy, lighting, insulation, and HVAC systems.

1. Organize and Review Financial Records

The first step toward year-end bookkeeping success is to ensure that your financial records are complete and well-organized. This involves gathering all invoices, receipts, bank statements, and other financial documents that pertain to the current year.

  • Categorize Income and Expenses: Ensure every transaction is accurately categorized in your accounting system. This helps generate precise financial reports and aids in tax preparation.

 

  • File Digital and Physical Records: Digitalize important documents if possible, and maintain backups. Organize physical files into clearly labeled folders for easy access.

 

  • Review Accounts Payable and Receivable: Double-check outstanding invoices and follow up on unpaid bills to help improve cash flow going into the new year.

Man happy doing his small business taxes

2. Reconcile Your Bank Accounts

Bank reconciliation is a crucial step in ensuring that your books align with your bank statements. Any discrepancies can signal errors or missed transactions.

  • Match Transactions: Go through each transaction in your bank statement and match it with the corresponding record in your accounting software. Look for duplicates or missing entries.
  • Address Errors: Investigate and resolve any discrepancies promptly. Common issues include data entry errors, outstanding checks, or unrecorded fees.
  • Verify Petty Cash: Ensure that the cash on hand matches your records, and account for any differences.
cash flow inventory

3. Prepare Financial Statements

Organized financial statements provide a clear picture of your business’s performance and are essential for evaluating profitability, making strategic decisions, and facilitating tax filing.

  1. Create an Income Statement: This report, also known as the profit and loss statement, summarizes your revenue and expenses over the year, highlighting your net profit or loss.
  2. Generate a Balance Sheet: This statement provides a snapshot of your company’s assets, liabilities, and equity at year-end, helping assess the financial position of your business.
  3. Cash Flow Statement: This report details cash inflows and outflows and is essential for understanding your business’s liquidity.
energy efficiency tax credit

4. Review and Adjust Inventory Records

For product-based businesses, a year-end inventory count is crucial to ensure that recorded inventory matches what is physically in stock.

  • Conduct a Physical Count: Count every item in your inventory and compare the results with your bookkeeping records.
  • Adjust for Shrinkage: Account for discrepancies due to theft, damage, or loss, and record these adjustments in your financial statements.
  • Update Inventory Valuation: Ensure that your inventory valuation method (e.g., FIFO, LIFO, or weighted average) is consistent and accurately reflects your costs.
An accountant reviewing tax planning with a business owner

5. Review and Write Off Bad Debts

Review your accounts receivable for long-outstanding invoices that are unlikely to be collected. Writing off bad debts can provide a more realistic view of your revenue and offer potential tax benefits.

  • Assess Outstanding Invoices: Identify overdue invoices that are unlikely to be paid.
  • Record Write-Offs: Write off these debts in your accounting system, reducing accounts receivable and recognizing the loss in your income statement.

6. Check Payroll and Employee Records

Ensure that all payroll data for the year is accurate and that necessary deductions and withholdings have been properly recorded. Verify that employee records are current, including addresses, tax details, and benefits.

  • Review Year-to-Date Totals: Confirm that total payroll matches reported amounts on your financial statements.
  • Prepare W-2s and 1099s: Start preparing tax forms for employees and contractors to send out in January.
  • Confirm Tax Withholdings: Double-check that all withholdings and benefits are accurately recorded to prevent errors in tax reporting.

7. Plan for Tax Season

After reviewing your books, start preparing for tax season. Early preparation can reduce stress and ensure you take full advantage of available deductions.

  • Review Deductions: Go through your expenses to identify deductible items, such as business travel, office supplies, and marketing costs.
  • Consult a Professional: If needed, work with an accountant or tax professional to review your year-end financials and confirm compliance with tax laws.
  • Set Aside Funds: Estimate your tax liability and set aside necessary funds to avoid being caught off-guard when it’s time to pay.
A small shop worker reviewing orders

Conclusion

Year-end bookkeeping can seem overwhelming, but breaking it down into manageable steps ensures a smooth closeout and sets you up for a successful new year. By organizing your records, reconciling accounts, preparing accurate financial statements, and planning for taxes, you’ll position your business for future growth and financial health.If you need expert help managing your year-end bookkeeping and financial tasks, Vertices is here to assist. Our team of experienced professionals can streamline your financial processes and ensure your business is prepared for year-end success. Reach out to Vertices to see how we can support your bookkeeping and accounting needs, helping you achieve long-term financial stability and peace of mind.

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